Prefatory Note The attached document represents the most complete and accurate version available based on original copies culled from the files of the FOMC Secretariat at the Board of Governors of the Federal Reserve System. This electronic document was created through a comprehensive digitization process which included identifying the best-preserved paper copies, scanning those copies,1

and then making the scanned versions text-searchable.2

Though a stringent quality assurance process was employed, some imperfections may remain. Please note that some material may have been redacted from this document if that material was received on a confidential basis. Redacted material is indicated by occasional gaps in the text or by gray boxes around non-text content. All redacted passages are exempt from disclosure under applicable provisions of the Freedom of Information Act.                                                                    1  In some cases, original copies needed to be photocopied before being scanned into electronic format. All scanned images were deskewed (to remove the effects of printer- and scanner-introduced tilting) and lightly cleaned (to remove dark spots caused by staple holes, hole punches, and other blemishes caused after initial printing).  2 A two-step process was used. An advanced optical character recognition computer program (OCR) first created electronic text from the document image. Where the OCR results were inconclusive, staff checked and corrected the text as necessary. Please note that the numbers and text in charts and tables were not reliably recognized by the OCR process and were not checked or corrected by staff. 

Content last modified 6/05/2009.  

CONFIDENTIAL (FR)

SUPPLEMENT

CURRENT ECONOMIC AND FINANCIAL CONDITIONS

Prepared for theFederal Open Market Committee

By the StaffBoard of Governors

of the Federal Reserve SystemFebruary 6, 1970

SUPPLEMENTAL NOTES

The Domestic Economy

Labor market. Employment and unemployment estimates for

January show continued easing of demand for labor: total nonfarm pay-

roll employment was unchanged for the third successive month; the

factory workweek declined sharply; and the over-all unemployment rate

rebounded to 3.9 per cent. This would be the highest rate since 1967.*

Much of the rise in the unemployment rate in December

reflected higher unemployment among adult men. The weakening of

industrial demand continued to be reflected in the unemployment rates

of wage and salary workers in manufacturing and for the blue-collar

occupation group. At the same time, the jobless rate for adult women

was virtually unchanged--both over the month and from a year earlier--

suggesting continued firmness in the occupations and industries normally

heavily staffed by women.

Compared to the low levels of a year earlier, total unemploy-

ment was up by 530,000, with three-fifths of the increase among men

aged 20 years and over.

* These data reflect new seasonal adjustments which reduced the ratesfor September and October to 3.8 per cent and raised the rates forNovember and December to 3.5 per cent.

SELECTED UNEMPLOYMENT RATES(Seasonally adjusted)

January

Total 3,4

Men, aged 20 and over 2.0Women, aged 20 and over 3.6Teenagers, both sexes 12.0

White 3.0Negro and other races 6.2

Blue-collar workers 3.8Manufacturing workers 3.2

Insured unemployed 2.1

* The data for 1969 have been revised tonew seasonal adjustment factors.

1969* 1970December January

3.5 3.9

2.2 2.53.5 3.611.8 13.8

3.2 3.65.7 6.3

4.3 4.63.8 3.8

2.4 2.5

reflect the introduction of

Preliminary payroll employment estimates (based however on

a weaker-than-usual sample, which subjects these figures to a possible

large revision) show substantial declines in construction (in part due

to extreme cold weather) and State and local government employment in

January. The declines were offset by increases in trade and service

employment and, with the number of manufacturing jobs unchanged, total

payroll employment averaged 70.65 million in January--about the same

as in October, November, and December.

NONFARM PAYROLL EMPLOYMENT(Seasonally adjusted)

TotalManufacturingConstructionAll others

January 1970level

(in thousands)

70,64920,0103,268

47,371

Change fromYear

Decembereaearlier

-7 1,434-3 7

-175 -63171 1,490

I I ,

-----

Within manufacturing, there was a decline of 52,000 in the

durable goods group, with about half the drop in transportation equip-

ment, mainly autos. There was an offsetting employment increase in the

nondurables sector, with the bulk of the rise occuring in the food

industry.

The average factory workweek fell 0.4 hours to 40.2 hours in

January, with most of the decline resulting from cuts in overtime work.

Reductionswere widespread but largest in durable goods industries.

AVERAGE WEEKLY HOURS(Seasonally adjusted)

1970 Change fromJanuary level December Year earlier

Manufacturing 40.2 -,4 -.4Overtime 3.2 -.3 -.5

Durable goods 40.7 -.5 -.6Overtime 3.2 -.4 -.6

Retail sales. Recent revisions in retail sales suggest that

personal consumption expenditures in the fourth quarter may have been

lower than previously estimated. The first estimate of December retail

sales was revised downward by 1/2 a per cent, changing a slight increase

from November to a very slight decrease. November sales also were

revised downward, by 0.3 per cent.

As a result of the change in the December level and better

sales in the final week of the month, the weekly January figures now

indicate a slight increase from the previous month, possibly about 1/2

a per cent.

RETAIL SALESPer cent change from previous period, seasonally adjusted

1969November December QIV

Total *0.5 -0.2 0.9

Durable goods -1.3 0.5 0.6Automotive -1.3 -1.8 1.0

Nondurable goods -0.1 -0.5 1.1Food -0.3 -0.1 1.5General Mdse. -0.3 -0.5 0.4

Real* -0.9 -0.7 -0.4

* Deflated by all commodities, CPI.

Seasonally adjusted outlays for new

place, which were revised downward by about 2

construction put in

per cent for December

and other recent months,/ moved up slightly in January to an annual

rate of $89.3 billion. This was 4 per cent below the peak reached last

April and below a year earlier in current dollar as well as real terms.

For 1969 as a whole, the year-to-year rise had averaged 8 per cent,

almost entirely a result of higher costs.

Within the private sector, residential construction outlays

continued to decline in line with the protracted downtrend in housing

1/ This reflected downward benchmark adjustments for the second halfof the year. The adjustments were for the "additions and alterations"component of private residential construction expenditures and forState and local government outlays from levels reported earlier.While the revision for additions and alterations lowered the secondhalf level by $1.6 billion--or by 5 per cent for residential construc-tion as a whole--it had the effect of bringing series back into linewith the currently available GNP series for residential structures.For State and local expenditures, the average downward adjustmentover the second half year amounted to 3 per cent.

starts which apparently continued into the new year. Outlays for

private nonresidential construction were projected to have risen in

January, but this followed a three-month drop and left the rate still

somewhat under the peak of last September. Within the public sector,

outlays for State and local projects apparently changed little, at a

level nearly a tenth below the record established last February and--

as in the case of Federally owned projects--appreciably below the rising

rate in January of 1969.

NEW CONSTRUCTION PUT IN PLACE(Confidential FRB)

January 19701/ Per cent change from

($ billions)- December 1969 January 1969

Total 89.3 +1 -3

Private 62.1 - -1Residential 28.3 -4 -9Nonresidential 33.9 +4 +7

Public 27.1 - -7Federal 3.3 -2 -6State and local 23.8 -- -7

1/ Seasonally adjusted annual rates; preliminary. Data for the mostrecent month (January) are confidential Census Bureau extrapolations.In no case should public reference be made to them.

The Domestic Financial Situation

Bank credit. Total bank credit is now estimated to have

declined $3.1 billion in January rather than $2.6 billion as reported

on page III-2 of the Greenbook. Data for large commercial banks which

became available after the Greenbook was prepared indicate that holdings

of U.S. Government securities and loans to businesses, security dealers,

and nonbank financial institutions all declined slightly more than

previously estimated.

Bank sales of loans to their own holding companies and

affiliates increased further in the last week of January. These addi-

tional sales offset in large part the effect of the downward revisions

in outstanding bank credit and as a result, data adjusted for loan sales

are little different from those shown in the Greenbook.

NET CHANGE IN BANK CREDIT1/All commercial banks, seasonally adjusted

January 1970 2

Billions Percentage changeof dollars in annual rates

Total loans & investments -3.1 - 9.3U.S. Gov't. securities -1.8 -41.7Other securities 0.4 6.9Total loans -1.6 - 7.0

Business loans -0.9 -10.3

Memoranda:Total loans & investmentsplus loan sales 3/ -1.2 - 3.6

Total loans plus loan sales 3/ 0.3 1.3Business loans plus businessloan sales 4/ 0.9 10.1

/ Last Wednesday of month series.2/ All January changes are preliminary estimates based on incomplete

data and are subject to revision.3/ Includes outright bank sales of loans to their own holding companies,

affiliates, subsidiaries, and foreign branches.4/ Includes outright bank sales of business loans to their own holding

companies, affiliates, subsidiaries, and foreign branches.

Savings and loan associations experienced a $1.4 billion

deposit outflow in January, a record for the month and nearly matching

the $1.5 billion record outflow in July 1966 (data not adjusted for

seasonal variation). According to the FHLBB's sample survey, the with-

drawals were relatively well dispersed geographically and throughout

the month. The FHLBB intends to monitor deposit experience in early

February, and some indication for that period will be available in mid-

February.

On a seasonally adjusted basis, the January experience was

the worst on record. However, this may be somewhat overstated because

of technical difficulties in making the adjustment.

DEPOSIT GROWTH* AT NONBANK THRIFT INSTITUTIONS(Seasonally adjusted annual rates, in per cent)

Mutual Savings & Loan BothSavings Banks Associations

1969 - QI 6.1 6.0 6.0

QII 4.3 3.7 3.9

QIII 2.0 2.1 2.1

QIV/ 2.9 0.4 1.2

November 4.9 2.4 3.2

December 2.9 0.5 1.3

1970 - January - n.a. -6.9 n.a.

* Because of seasonal adjustment difficulties, monthly patterns maynot be significant.

p/ Preliminary. N.A. - Not available.

Government securities market. Yields on Government notes

and bonds have declined some 10 to 25 basis points, in the first week

of February, while Treasury bill rates have fallen about 25 to 35 basis

points, with the 3-month issue falling below 7.50 per cent. The market's

rally was based on a more hopeful outlook for some relaxation in credit

policy which was given further impetus by the weaker labor market indi-

cations reported for January.

The over-all improvement in market psychology contributed to

a strong dealer and investor interest in the three new Treasury notes

being offered in the current refunding. Most recently, the 18-month

8-1/4 per cent note was quoted 100.20--.23 (in 1/32's) on a when-issued

basis, putting its yield at about 7.73 per cent, offered, while the

42-month 8-1/8 per cent and 7-year 8 per cent notes were quoted 100.23--

.26 and 100.24--.27, respectively, yielding 7.86 and 7.84 per cent.

Data on the results of the Treasury financing were still

unavailable at the time of the Supplement.

INTEREST RATES

1969 19701969 [ 1970

Low Highs I January 12 February 5

Short-Term Rates

Federal funds (weekly averages) 5.95 (1/1) 9.61 (9/24) 8.45 (1/7) 9.21 (2/4)

3-monthsTreasury bills (bid)Bankers' acceptancesEuro-dollarsFederal agenciesFinance paperCD's (prime NYC)

Highest quoted new issuesSecondary market

6-monthsTreasury bills (bid)Bankers' acceptancesCommercial paperFederal agenciesCD's (prime NYC)

Highest quoted new issueSecondary

I-yearTreasury bills (bid)Prime municipals

Intermediate and Long-Term

Treasury coupon issues5-years20-years

CorporateSeasoned Aaa

BaaNew Issue AaaNo call protectionCall protection

MunicipalBond Buyer IndexMoody's Aaa

Mortgage--implicit yieldin FNMA biweekly auction 1/

5.876.387.066.036.13

6.006.40

5.966.506.256.32

(4/30)(2/17)(1/22)(3/28)(3/11)

(4/30)

(4/30)(2/17)(1/7)(1/16)

6.256.50 (1/30)

5.86 (1/16)3.90 (1/2)

6.11 (1/20)5.91 (6/5)

6.56 (1/2)7.26 (2/3)

7.03 (1/23)6.90 (2/20)

4.82 (1/23)4.57 (1/2)

7.66 (1/6)

8.088.62

12.508.398.25

6.009.05

8.098.758.888.58

6.259.15

(12/29)(12/15)(6/10)(11/20)(12/3)

(12/31)

(12/29)((12/15)(10/8)(11/20)

(12/31)

7.86 (11/24)6.25 (12/11)

8.33 (12/29)7.14 (12/29)

7.91 (12/31)8.91 (12/31)

7.80 (6/20)8.85 (12/5)

6.90 (12/19)6.57 (12/26)

8.87 (12/29)

7.908.75

10.438.30 (1/9)8.25

6,009.00

7.628.888.758.44

6.259.15

(1/9)

7.505.60 (1/7)

8.166.84

7.918.91

8.48 (1/9)

6.61 (1/9)6.41 (1/9)

9.36

7.568.389.468.178.25

6.758.75

7.578.508.508.38

7.008.95

7.345.30

8.186.82

7.978.80

8.63

6.546.28

9.29 (1/26)

1/ Yield on 6-month forward commitment after allowance for commitment fee andrequired purchase and holding of FNMA stock. Assumes discount on 30-yearloan amortized over 15 years.

-10-

Corrections

Page I - 3, line 7. Substitute pressure for "business" near

the end of the sentence.

Page I - 7. The second sentence under "Balance of Payments

Outlook" should read: "The December dip in imports held down the

fourth-quarter advance in imports to less than we had expected".

Page III - 20. The new 8-1/8 per cent note has a 42-month

maturity rather than the 39-months stated in the Greenbook.

Page IV - 13. In the table on this page, the estimated rate

of increase in Japanese real GNP from the second half of 1968 to the

second half of 1969 should be 14 per cent. For Germany, in place of

the OECD projection of a 3.3 per cent rise in real GNP from the second

half of 1969 to the second half of 1970, the Board staff projects a

4-1/4 per cent increase.

Page IV - C - 1. In the U.S. merchandise trade chart (in

the top left position on this page) the import moving average for

October-December should be $37.7 billion, annual rate, instead of $35.9

billion (which was the one-month annual rate in December).

Page II - 17, line 7. 548,000 should be 654,000.

SUPPLEMENTAL APPENDIX A:. NET INCREASE IN MORTGAGE DEBT OUTSTANDING*

For 1969 as a while, the net increase in total mortgage debtoutstanding rose $27.1 billion, based on preliminary data. This increasewas only slightly less than the record 1968 expansion, and was a fourthlarger than in 1966. Mortgage lending last year was supported heavilyby an upsurge in the advances from the Federal Home Loan Banks to theS&L's, and by a record volume of net purchases by the Federal NationalMortgage Association.

MORTGAGE DEBT OUTSTANDING BY TYPE OF HOLDER(Billions of dollars)

Net increase: Outstanding1965 1966 1967 1968 1969p End of 1969p

All holders 25.6 21.3 23.0 27.4 27.1 424.6

Financial institutions, total 23.6 15.8 18.2 21.3 19.1 339.0Commercial banks 5.7 4.7 4.6 6.7 5.1 70.9Mutual savings banks 4.1 2.7 3.2 2.8 2.4 55.8Savings and loan assns. 9.0 3.8 7.5 9.4 9.5 140.2Life insurance companies 4.9 4.6 2.9 2.5 2.1 72.1

1/Federal & related agencies- 1.0 3.4 2.7 3.3 5.1 26.8FNMA 0.5 1.9 1.1 1.6 3.8 10.9

Individuals and others 1.1 2.1 2.1 2.9 2.9 58.8- - - e - e -a -m -m m m -e s m - - - - - - - - - - - - - - - - - -

Per cent

Memo: Per cent of total increasefinanced directly orindirectly by Federal andrelated agencies, includingFHLB advances 6.6 20.2 0.9 15.3 33.6

Preliminary.Federal and related agencies includes - FNMA, GNMA,Housing Administration, the Federal Land Banks, andAdministration.

VA, the Federalthe Farmers Home

* Prepared by Fred Taylor, Economist, Capital Markets Section, Divisionof Research and Statistics.

SA - 2

Financial institutions, which had led the recovery inmortgage debt following the 1966 slump, reduced their net mortgageacquisitions last year by almost 10 per cent. Reduced savings inflows,particularly during the second-half of the year, to commercial banks andthe thrift institutions, and a record demand for policy loans from thelife insurance companies limited the funds available for mortgage invest-ment by these institutions. Commercial banks, which had sharply expandedtheir mortgage portfolios in 1968 and even through the first half of1969, when the high level of commitments apparently built up earlier weretaken down, cut back appreciably during the second half. Mutual savingsbanks limited the growth of their mortgage holdings throughout the yearas mortgages became a relatively less attractive form of investment. Thenet mortgage debt acquisitions of life insurance companies also declined,with the reduction concentrated in the holdings of 1- to 4-familyproperties, which have been declining for the last three years. Mort-gage investment in income-property by life insurance companies, on theother hand, was largely sustained in response to the appeal of generallyhigher yields and increased possibilities for equity participation insuch projects. Savings and loan associations last year, slightlyexceeded their 1968 level of net mortgage acquisitions. However, theseassociations were able to do so only through a massive injection ofFHLB funds, which financed almost half the net increase in S&L mortgageholdings.

In addition to the support provided by the FHLB's, theFederal National Mortgage Association became an important factor in1969. Operating through a restructured secondary market auction system,FNMA's net purchases of Government-assisted home mortgages were doublethe 1966 total. While they were unable to offset fully the short-fallsof the financial institutions during the year, FNMA and the FHLB Banks,along with the other government agencies, financed, either directly orindirectly, over a third of the total increase in mortgage debt.

Reflecting in part the strong Government agency support, the1- to 4-family property average remained relatively advanced throughoutthe first half year, though, like housing starts and other real estateactivity, on a seasonally adjusted basis, it tended downward as theyear progressed and at a faster rate than debt on income properties.

SA - 3

INCREASES IN MORTGAGE DEBT OUTSTANDING(Seasonally adjusted annual rates in billions of dollars)

Total 1-4 Multifamily Farmfamily & Commercial

1966 21.3 10.3 8.8 2.1

1967 23.0 12.5 8.3 2.1

1968 27.4 15.3 10.1 2.1

1969 27.1 15.5 9.5 2.1

1969 - I 30.4 17.9 10.3 2.2

II 28.5 16.5 9.6 2.3

III 26.4 15.1 9.1 2.0

IV 23.9 13.0 9.0 1.9

Though still comparatively high, net mortgage debt formationfor multifamily and commercial properties accounted for all of the year-to-year decline. However, the modest decline reflected in large part ashift to other non-mortgage types of financing, particularly in the caseof commercial properties, which along with multifamily structures reachedrecord outlay levels last year.

Despite the fact that the net increase in total mortgagedebt outstanding last year was little changed from 1968, the seasonallyadjusted annual rate of increase for the fourth quarter of 1969 wassharply (a fifth) lower than in the fourth quarter of 1968, with both1- to 4-family and income properties sharing equally in the decline.